If you are reading this, you have probably heard of cryptocurrencies or more specific, the top trending cryptocurrency called Bitcoin. Another concept that has probably led you to this article is trading, whether it is stocks, the foreign exchange market or cryptocurrencies. However, this trading ultimate guide mainly focuses on cryptocurrencies and how to get started trading them.
Instead of going into all the details and lengthy discussions of the blockchain, bubbles, regulations, temporary hype etc, the fact remains that people are making money trading cryptocurrencies and you could be amongst them. It can be extremely difficult to find an accurate step by step guide on how to start trading cryptocurrencies but let’s just say you came to the right place.
Here is a 7 step guide for you to follow so that you can enter into the cryptocurrency markets and start earning today.
- Understanding cryptocurrency
- Learn to trade the cryptocurrency market
- Choose a cryptocurrency exchange
- Choose a cryptocurrency wallet
- Find a cryptocurrency to trade
- Manage your risk
- Start trading
1. Understanding cryptocurrency
Before investing or trading your hard-earned money, it is a good idea to get an understanding of the market.
Cryptocurrencies are tradeable digital assets or digital form of money. This virtual money is decentralised, meaning they are not backed or controlled by a government or a central bank of any country.
One of the most famous cryptocurrencies is Bitcoin, which was invented to create an alternative currency for anyone who wanted to opt-out of the traditional banking system during the 2008 Financial Crisis. Cryptocurrencies like Bitcoin want to make financial transactions more open and accessible to everyone around the world – which is why they have become so popular in recent years. Bitcoin transfers can be done with minimal processing fees – avoiding the high fees charged by traditional financial institutions.
How does cryptocurrency trading work?
Just like trading the Foreign Exchange (Forex) market, cryptocurrency trading is the buying and selling of currencies to generate a profit. In its simplest form, you’re betting on the changing price difference between two different currencies. These funds are then used to place buy and sell orders against another currency. You make profits from selling, or closing orders at a higher price than you bought.
Trading cryptocurrencies works exactly the same as the forex market trading, but instead of selling and buying fiat currencies, such as euros or US dollars, traders buy and sell cryptocurrencies, such as Bitcoin, Ethereum or Litecoin. You will usually exchange a fiat currency into a cryptocurrency and then, at a later date, back into a fiat currency, although there are traders and exchanges that allow cryptocurrency-to-cryptocurrency trading.
For example, you might speculate on the change of price between the Bitcoin and the US dollar.
If you think Bitcoin will increase in value you might enter a “Long” position. This means you buy Bitcoin as you believe that it will increase in value relative to the US dollar.
If you think Bitcoin will decrease in value you might enter a “Short” position instead. This means that you sell Bitcoin as you believe that it will decrease in value relative to the US dollar.
2. Learn how to trade the cryptocurrency market
You may or may not have some experience in trading the Stock or Forex (FX) markets, but the Cryptocurrency market is a whole different ‘game’. It is advised to study the cryptocurrency charts first before starting to trade them. Do not to assume that your skills attained by trading other markets will be sufficient and that your trading strategies will work the same in the crypto market. Traders often assume that skills and trading strategy’s developed in alternative financial markets can be applied to others, you need to take time and research each market respectively.
If you are a new trader in general, it is advised that you either start with a demo trading account and train yourself, or sign up to our FREE online trading academy which is designed to help you prepare for success in the financial markets. Not only will we teach you the technical and fundamental side of trading we will also teach you the mentally needed to trade like a pro. Simply sign up for a free account and learn how to trade today.
It is important to find a strategy for each trade you will make and apply these strategies in the cryptocurrency market. We have spent years developing ours, it may seem daunting at first but once you pick up the basics, picking up the rest of the knowledge can become a walk in the part.
What affects the price of a cryptocurrency?
Why is cryptocurrency so volatile? They are not as stable as currencies that have had centuries to develop. Bitcoin is the oldest coin on the market, and it has only been around since 2009. Nevertheless, there are a number of things that can affect cryptocurrencies:
No intrinsic value:
Most cryptocurrencies don’t sell a product, earn revenue or employ thousands of people. They generally don’t return dividends, and just a tiny amount of the total value of the currency goes into evolving it. Because of this, it is extremely difficult to value. How do we know if it is fundamentally overbought or oversold? When is it a good value or overpriced? Without any fundamentals to base this information off of, we can only rely on market sentiment, often dictated by the media that makes money on viewership.
The lack of regulation in the cryptocurrency space can play a factor in the volatility of the price. This low level of regulation allows for market manipulation. Often done by placing orders with the intent to cancel, whereas in a regulated market such as the foreign exchange placing fake orders is illegal. Creating these false orders can lead to a misrepresentation of market behaviour which can cause volatility with the false orders encouraging uncertainty.
Supply and demand:
Another reason the price of crypto is so volatile comes down to simple Economics. When the demand for an asset increases quicker than the supply, the price is likely to rise. We saw this come into play with Bitcoin during the Christmas period of 2017. The demand for Bitcoin was widespread due to the profit being made by traders throughout the year and the supply could not keep up with the massive uptake, which led to the price reaching an all-time high of around $20,000.
Lack of institutional capital:
While it is undeniable that some pretty impressive venture capital companies, hedge funds and high net-worth individuals are both fans of and investors in crypto, as a segment, most of the institutional capital is still on the sidelines. At the moment there has been little to no movement on a Bitcoin ETF or Mutual Fund, which is predicted to introduce much needed institutional volume into the cryptocurrency markets.
Just like government regulation, exposure in the media greatly affects a cryptocurrency’s price. Whenever a public figure makes a statement regarding cryptocurrencies or a major retailer starts accepting cryptocurrency as a form of payment, you will see the market respond.
Changes to technology:
When a cryptocurrency’s core technology is affected (either via an update or the finding of a flaw), the cryptocurrency’s price is also affected.
The cryptocurrency market is only roughly 10 years old and still an emerging market. The total size of the cryptocurrency market is currently $250B. Although this is a huge amount, it is a small figure when compared to the foreign exchange market which totals around $5T per day. This is why the foreign exchange market is able to keep stability even when there are massive movements in the market. The same cannot be said about the cryptocurrency market. This allows a few big traders who hold a lot of currencies (referred to as whales) have the ability to shift the market by making huge transactions.